Shares of Allied Capital Corp have been wiped out over the past year, but David Einhorn, the hedge fund manager who has famously shorted the business lender's stock, feels more vexed than vindicated.Allied stock is now around 97 percent lower from where Einhorn sold it short. Einhorn's comment above about how far more widespread the problem was than he realized is exactly correct. My review will show why--on a fundamental level--and, in doing so, show the fuller, true value of Fooling Some of the People.
That's because the past year's financial markets collapse has produced even more serious fall-out. From the demise of Lehman Brothers to Bernard Madoff's massive Ponzi scheme, the questionable accounting practices of a small lender was just one product of sleepy regulatory oversight, Einhorn told Reuters in an interview.
"What we've seen a year later is that Allied was the tip of an iceberg; that this kind of questionable ethic, philosophy and business practice was far more widespread than I recognized at the time," he said. "Our country, our economy, is paying a huge price for that."
Einhorn, head of the $5 billion hedge fund firm Greenlight Capital, made headlines in May 2002 when he told an audience he believed Allied's stock was overvalued. He argued Allied was slow to mark down depressed assets -- often equity stakes in small private companies -- and stretched accounting rules.
Greenlight shorted the stock, meaning it would profit if Allied's price fell. Einhorn also submitted what he considered red flags to the Securities and Exchange Commission, expecting that the agency would investigate.
Instead, what followed was a long public battle between Einhorn and Allied, which denied and continues to deny wrongdoing, as well as SEC scrutiny of the hedge fund manager's short-selling activities.
It was and is far more than simply a book about a single short case in a single company--telling what went wrong and why. For a more exact identification, stay tuned